ECONOMY

Stunning Jobs Report Complicates Debt Deal for Both Obama, GOP

Recent graduate Divya Konuru (second from the left) waits in line to speak to a recruiter at the New Jersey Collegiate Career Day hosted by Rutgers University on May 28, 2009 in New Brunswick, New Jersey.(Chris McGrath/Getty Images)

June’s woefully underwhelming increase in jobs is a climactic twist in the negotiations between President Obama and congressional Republicans over federal borrowing, government debt and America’s economic future.

Best-case scenario, it’s a Michael Bay twist: dramatic, explosive, but it all works out in the end.

The Labor Department’s report Friday morning that the economy added just 18,000 net jobs last month, or roughly six figures below the consensus forecast from economic analysts, immediately hardened conservatives’ and liberals’ beliefs about why the recovery continues to sputter and what it needs to kick into gear. That hardening, and the political pressure that will ratchet up along with it, is the unwelcome twist in the endgame negotiations over raising the federal debt ceiling.

Whether his economic advisers acknowledge it or not, Obama now must confront new and persuasive evidence that he has, once again, overestimated the strength of the recovery. The White House has said for months that the economy was past the point of needing more help from the government, even as gas prices rose and sapped consumer spending, and Japan’s earthquake disrupted global trade. The president has mimicked Republicans in calling for government belt-tightening, even as the public sector steadily sheds jobs, including 39,000 more in June.

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On Friday, liberals more or less revolted against that philosophy. The June jobs report “demonstrates austerity is killing the recovery,” the Campaign for America’s Future said in a press release. Economic Policy Institute economist Heidi Schierholz warned that the labor market is in “full retreat” and said Obama and Congress “need to stop talking about deficit reduction and start talking about job creation.”

For Obama, that adds up to a lot of pressure to get more money, now, into consumers’ hands as part of a debt-ceiling deal, possibly in the form of a deeper cut in payroll taxes. Which is to say, at a time when the president has steadily moved toward Republicans at the bargaining table, he might need to throw down a few new demands of his own.

The twist might be even more dramatic for House Speaker John Boehner, who is spearheading GOP negotiations on the debt ceiling and demanding trillions of dollars in spending cuts along with increased borrowing authority.

Boehner greeted the jobs report with a now-stock response, calling it evidence that"the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country." Other conservatives were harsher:Bill Wilson, president of Americans for Limited Government, said it was “time for this president to end his love affair with trillion-and-a-half-dollar deficits and higher taxes on those who produce jobs.”

The pressure is now certainly rising on Boehner not to cut a deal, any deal, with Obama that gives an inch of ground on federal spending. There are two reasons for that. The first is that weak jobs numbers appear to weaken Obama’s hand at the table. If the economy already looks terrible, Republicans might conclude, how much could the president really blame the GOP if negotiations fail, the government defaults, and markets tank?

The second explanation is entirely political. Once Boehner cuts a debt-ceiling deal - unless it’s a very short-term one - the Republican Party loses some of its best cudgels for battering the president on the economy. Working together, Republicans and the president will have reduced uncertainty over federal debt levels and cut government spending. What would Republicans’ “Where are the Jobs?” press releases say next month, in that case?

A U.S. default, or a drastic and immediate cut in spending to avert one next month, would give this recovery a very unhappy ending. Most analysts say America would risk falling back into recession. Avoiding that scenario just got more difficult. Let’s just hope this isn’t The Sixth Sense all over again, and we’re not dead already.